S.C. Agrees to Hear Case on Federal Arbitration Act Preemption

Friday, April 3, 2015

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S.C. Agrees to Hear Case on Federal Arbitration Act Preemption

Justices to Decide Whether UCL and Other Statutory Injunction Claims Can Be Forced Into Alternative Forum

By KENNETH OFGANG, Staff Writer

The state Supreme Court has agreed to decide whether the Federal Arbitration Act preempts a California rule that individuals who bring statutory claims seeking injunctive relief on behalf of the public cannot be compelled to submit those claims to arbitration.

The justices, at their weekly conference in San Francisco Wednesday, agreed to review the ruling of the Fourth District Court of Appeal’s Div. Three in McGill v. Citibank, N.A. (2014) 232 Cal. App. 4th 753.

The vote was 6-0, with Justice Carol Corrigan recused.

At issue in the case is the fate of the Broughton-Cruz rule, as in in Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, and Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303. The cases hold that contractual arbitration provisions are unenforceable as against public policy if they require arbitration of Unfair Competition Law, Federal Arbitration Law, or Consumer Legal Remedies Act injunctive relief claims brought for the public’s benefit.

In its McGill ruling in December, the Court of Appeal held that under AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, “the United States Supreme Court unmistakably declared the FAA preempts all state-law rules that prohibit arbitration of a particular type of claim because an outright ban, no matter how laudable the purpose, interferes with the FAA’s objective of enforcing arbitration agreements according to their terms.”

The plaintiff, Sharon McGill, is seeking, on behalf of a class of similarly situated persons, to enjoin Citibank from engaging in what she says are unfair and deceptive practices in connection with its credit protection plan.

Iskanian Distinguished

The Court of Appeal rejected the plaintiff’s argument that Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 reaffirmed the Broughton-Cruz rule. The Iskanian court held that AT&T Mobility did not preclude it from holding that representative actions under the Labor Code Private Attorney Generals Act of 2004 are not subject to forced arbitration.

“Nothing in the text or legislative history of the FAA nor in the Supreme Court’s construction of the statute suggests that the FAA was intended to limit the ability of states to enhance their public enforcement capabilities by enlisting willing employees in qui tam actions,” Justice Goodwin Liu wrote for the court, which was unanimous on the issue.

The court did, however, hold 6-1 that provisions prohibiting an employee from bringing a class-wide claim, either in arbitration or in court, were enforceable.

‘Narrow Exclusion’

Justice Richard Aronson, writing for the Court of Appeal in McGill, said “a PAGA representative claim is not comparable to an injunctive relief claim under the UCL, FAL, or CLRA, and therefore Iskanian’s narrow exclusion does not save the Broughton-Cruz rule from preemption.”

In Kilgore v. KeyBank, Nat. Assn. (9th Cir. 2012) 673 F.3d 947, a three-judge panel of the Ninth Circuit held that the FAA preempts the Broughton-Cruz rule. In 2013, however, the Ninth Circuit ruled en banc in Kilgore v. KeyBank, N.A. (9th Cir. 2013) 718 F.3d 1052, that the Broughton-Cruz rule did not apply to the plaintiffs—students who claimed the defendant bank was culpable for drawing them into student loans that left them with lots of debt and no education because the school folded before they ever took a class—because the injunctive relief they sought would only have benefitted themselves and not the public.

In other conference action, the court granted review in People v. Vidana (2015) 233 Cal. App. 4th 666. The Fourth District’s Div. Three held in that case that larceny and embezzlement are not separate offenses, but are different ways of committing theft, so that the defendant, a credit agent charged with pocketing thousands of dollars she had collected on behalf of her employer, could not be convicted of two different crimes.